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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549




Form 10-Q



QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2003



Commission File Number 1-10981

SBS Technologies, Inc.

Incorporated in New Mexico



IRS Employer Identification No. 85-0359415

2400 Louisiana Blvd. NE AFC Building 5, Suite 600,
Albuquerque, New Mexico 87110
(505) 875-0600



Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES x NO o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES x NO o

The total number of shares outstanding of the registrants Common Stock as of
January 30, 2004 was 15,133,367.



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TABLE OF CONTENTS



|                                   |                                                                                                |                                                           |  |  |  |  |  | 
|---------------------------------- | ---------------------------------------------------------------------------------------------- | --------------------------------------------------------- |  |  |  |  |  | 
|FORWARD-LOOKING STATEMENTS        
|PART I FINANCIAL INFORMATION      
|                                   | Item 1 - Unaudited Condensed Financial Statements                                             
|                                   |                                                                                                | Consolidated Balance Sheets                              
|                                   |                                                                                                | Consolidated Statements of Operations                    
|                                   |                                                                                                | Consolidated Statement of Changes in Stockholders Equity
|                                   |                                                                                                | Consolidated Statements of Cash Flows                    
|                                   |                                                                                                | Notes to Condensed Consolidated Financial Statements     
|                                   | Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                   | Item 3  Quantitative and Qualitative Disclosures about Market Risk                           
|                                   | Item 4  Controls and Procedures                                                              
|PART II  OTHER INFORMATION       
|                                   | Item 4  Submission of Matters to a Vote of Security Holders                                  
|                                   | Item 6  Exhibits and Reports on Form 8-K.                                                    
|SIGNATURES                        
|INDEX TO EXHIBITS                 
|Second Restated and Amended Bylaws
|Sublease Agreement                
|Section 302 Certification of CEO  
|Section 302 Certification of CFO  
|Section 906 Certification of CEO  
|Section 906 Certification of CFO  



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##### Table of Contents



SBS Technologies, Inc. and Subsidiaries
Form 10-Q for the Quarter Ended December 31, 2003
Table of Contents

PageForward Looking Statements
    
    
    2PART I
    
    FINANCIAL INFORMATIONItem 1 - Unaudited Condensed Financial StatementsConsolidated Balance Sheets as of December 31, 2003 and June 30,
2003
    
    
    3Consolidated Statements of Operations, for the Three and Six
Months Ended December 31, 2003 and 2002
    
    
    4Consolidated Statement of Changes in Stockholders Equity, for the
Six Months Ended December 31, 2003
    
    
    5Consolidated Statements of Cash Flows, for the Six Months Ended
December 31, 2003 and 2002
    
    
    6Notes to Condensed Consolidated Financial Statements as of
December 31, 2003
    
    
    7Item 2 - Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    14Item 3 - Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4 - Controls and Procedures
    
    
    22PART II
    
    OTHER INFORMATIONItem 4 - Submission of Matters to a Vote of Security Holders
    
    
    24Item 6 - Exhibits and Reports on Form 8-K
    
    
    25SIGNATURES
    
    
    26EXHIBIT INDEX
    
    
    27






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FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements with respect to the
financial condition, results of operations and business of SBS
Technologies, Inc. and subsidiaries (referred to variously as SBS, we,
us and our). You may find many of these statements by looking for
words like intends, expects, projects, believes, anticipates or
similar expressions in this Form 10-Q. We consider all statements regarding
anticipated or future matters, including the following, to be
forward-looking statements:



| |  |  | statements about future events and our future financial performance;
| | - |  | --------------------------------------------------------------------



| |  |  | expected sales and gross margin;
| | - |  | --------------------------------



| |  |  | financing plans and expectations of internally-generated cash
flows, including cash flows from employee stock option exercises;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | new product introductions;
| | - |  | --------------------------



| |  |  | growth of the markets we serve;
| | - |  | -------------------------------



| |  |  | business strategy and competitive position;
| | - |  | -------------------------------------------



| |  |  | plans and objectives of management for future operations;
| | - |  | ---------------------------------------------------------



| |  |  | growth opportunities for existing products and services; and
| | - |  | ------------------------------------------------------------



| |  |  | benefits from new technology.
| | - |  | -----------------------------

These statements are not guarantees of our future performance. They
are based upon our assumptions and assessments only on the date we made
them and in light of our experience and our perception of historical
trends, current conditions, expected future developments, and other factors
we believe to be appropriate. Our assumptions and assessments include the
volume and product mix of sales, estimates of costs and inventory and
receivable levels based on preliminary information, and others. Risks,
uncertainties, and other important factors could cause actual performance
or achievements to be materially different from those we may project. These
risks, uncertainties, and factors include:



| |  |  | general business and economic conditions affecting our customers
and their end customers, including changes in the size and program
priorities of military procurement budgets, may be less favorable
than we expect, resulting in lower sales and earnings;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a high degree of uncertainty and rapid change in the markets
addressed by our products, which may affect the timing and amount of
future sales levels or cause the market value of our inventory to
decline, resulting in reduced gross profit levels;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | customer demand for and acceptance of our products, which may be
less than we expect, which may decrease both sales and margins;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to acquire and integrate new businesses, which may be
more costly than we expect;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | our ability to design, test, and introduce new products on a
timely basis, which if not timely, may decrease both sales and
margins;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the financial condition of our customers, which, if less
favorable than we expect, could result in reduced sales and
earnings;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in foreign currency exchange rates, which could impact
our financial results;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | changes in U.S. and foreign laws and regulations, which could
result in increased costs, lowered sales, or reduced earnings; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | the other risk factors listed under Risk Factors included in
SBS Annual Report on Form 10-K for the year ended June 30, 2003.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------

Many of the factors that will determine these items are beyond our
ability to control or predict. We caution
you not to place undue reliance on our forward-looking statements,
which speak only as of the date of this Form 10-Q. We do not undertake any
obligation to update publicly or revise any forward-looking statements,
whether as a result of new information, future events, or otherwise.

2



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SBS Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
Thousands (except share amounts)
(Unaudited)

December 31,
    
    June 30,2003
    
    2003AssetsCurrent assets:Cash and cash equivalents
    
    $
    42,397
    
    
    
    37,130Receivables, net
    
    
    21,043
    
    
    
    23,164Inventories
    
    
    21,602
    
    
    
    16,816Income tax receivable
    
    
    3,568
    
    
    
    4,830Deferred income taxes
    
    
    1,144
    
    
    
    1,629Prepaid expenses
    
    
    1,026
    
    
    
    1,661Other current assets
    
    
    466
    
    
    
    431Total current assets
    
    
    91,246
    
    
    
    85,661Property and equipment, net
    
    
    8,151
    
    
    
    8,462Goodwill, net
    
    
    17,461
    
    
    
    16,124Intangible assets, net
    
    
    5,882
    
    
    
    6,906Deferred income taxes
    
    
    11,165
    
    
    
    11,086Other assets
    
    
    270
    
    
    
    371Total assets
    
    $
    134,175
    
    
    
    128,610Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    4,630
    
    
    
    3,990Accrued representative commissions
    
    
    871
    
    
    
    688Accrued compensation
    
    
    4,047
    
    
    
    4,595Accrued severance and consolidation costs
    
    
    1,193
    
    
    
    224Other current liabilities
    
    
    2,424
    
    
    
    2,977Total current liabilities
    
    
    13,165
    
    
    
    12,474Other long-term liabilities
    
    
    21
    
    
    
    29Total liabilities
    
    
    13,186
    
    
    
    12,503Stockholders equity:Common stock, no par value;
200,000,000 shares authorized; 15,126,672 issued and outstanding at
December 31, 2003, 14,989,248 issued and outstanding at June 30, 2003
    
    
    91,342
    
    
    
    89,916Unearned compensation
    
    
    (117
    )
    
    
    (37
    )Accumulated other comprehensive income
    
    
    3,451
    
    
    
    257Retained earnings
    
    
    26,313
    
    
    
    25,971Total stockholders equity
    
    
    120,989
    
    
    
    116,107Total liabilities and stockholders' equity
    
    $
    134,175
    
    
    
    128,610


See accompanying notes to condensed consolidated financial statements

3



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SBS Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
Thousands (except per share amounts)
(Unaudited)

Three
months ended December 31,
    
    Six months ended December 31,2003
    
    2002
    
    2003
    
    2002Sales
    
    $
    32,503
    
    
    
    29,260
    
    
    
    59,080
    
    
    
    57,093Cost of sales
    
    
    16,469
    
    
    
    14,155
    
    
    
    30,113
    
    
    
    28,534Gross profit
    
    
    16,034
    
    
    
    15,105
    
    
    
    28,967
    
    
    
    28,559Selling, general and administrative expense
    
    
    7,998
    
    
    
    8,532
    
    
    
    15,616
    
    
    
    16,766Research and development expense
    
    
    4,747
    
    
    
    4,735
    
    
    
    9,558
    
    
    
    9,421Employee severance and consolidation costs
    
    
    276
    
    
    
    234
    
    
    
    2,330
    
    
    
    598Amortization of intangible assets
    
    
    553
    
    
    
    452
    
    
    
    1,101
    
    
    
    1,036Operating income
    
    
    2,460
    
    
    
    1,152
    
    
    
    362
    
    
    
    738Interest and other income, net
    
    
    104
    
    
    
    100
    
    
    
    446
    
    
    
    225Foreign exchange losses
    
    
    (207
    )
    
    
    (5
    )
    
    
    (282
    )
    
    
    (27
    )(103
    )
    
    
    95
    
    
    
    164
    
    
    
    198Income before income taxes and cumulative
effect of change in accounting principle
    
    
    2,357
    
    
    
    1,247
    
    
    
    526
    
    
    
    936Income tax expense
    
    
    825
    
    
    
    381
    
    
    
    184
    
    
    
    253Income before cumulative effect of change
in accounting principle
    
    
    1,532
    
    
    
    866
    
    
    
    342
    
    
    
    683Cumulative effect of change in accounting
principle (net of income taxes of $3,412)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,058
    )Net income (loss)
    
    $
    1,532
    
    
    
    866
    
    
    
    342
    
    
    
    (5,375
    )Earnings per share data:Net income (loss) per share:Income before cumulative effect
    
    $
    0.10
    
    
    
    0.06
    
    
    
    0.02
    
    
    
    0.05Cumulative effect of change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.41
    )Net income (loss)
    
    $
    0.10
    
    
    
    0.06
    
    
    
    0.02
    
    
    
    (0.36
    )Net income (loss) per share  assuming
dilution:Income before cumulative effect
    
    $
    0.10
    
    
    
    0.06
    
    
    
    0.02
    
    
    
    0.05Cumulative effect of change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.41
    )Net income (loss)
    
    $
    0.10
    
    
    
    0.06
    
    
    
    0.02
    
    
    
    (0.36
    )


See accompanying notes to condensed consolidated financial statements

4



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SBS Technologies, Inc. and Subsidiaries
Consolidated Statement of Changes in Stockholders Equity
For Six Months Ended December 31, 2003
Thousands (except share amounts)(Unaudited)

Accumulated
    
    
    
    
    
    TotalCommon stock
    
    Unearned
    
    other
    
    
    
    
    
    Stock-
    
    Compre-Compen-
    
    Comprehensive
    
    Retained
    
    holders'
    
    hensiveShares
    
    Amount
    
    sation
    
    income
    
    earnings
    
    Equity
    
    incomeBalances at June 30, 2003
    
    
    14,989,248
    
    
    $
    89,916
    
    
    
    (37
    )
    
    
    257
    
    
    
    25,971
    
    
    
    116,107Exercise of stock options
    
    
    126,148
    
    
    
    1,212
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,212Income tax benefit from
stock options exercised
    
    
    
    
    
    
    74
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    60Restricted stock awards
issued to directors
    
    
    11,276
    
    
    
    140
    
    
    
    (140
    )
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    342
    
    
    
    342
    
    
    $
    342Other comprehensive income:Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,194
    
    
    
    
    
    
    
    3,194
    
    
    
    3,194Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,536Balances at December 31, 2003
    
    
    15,126,672
    
    
    $
    91,342
    
    
    
    (117
    )
    
    
    3,451
    
    
    
    26,313
    
    
    
    120,989


See accompanying notes to condensed consolidated financial statements

5



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SBS Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Thousands
(Unaudited)

Six months endedDecember 31,2003
    
    2002Cash flows from operating activities:Net income (loss)
    
    $
    342
    
    
    
    (5,375
    )Cumulative effect of change in accounting principle, net
    
    
    
    
    
    
    6,058Income before cumulative effect of change in accounting principle
    
    
    342
    
    
    
    683Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Depreciation and amortization
    
    
    3,111
    
    
    
    3,032Bad debt expense
    
    
    
    
    
    
    268Deferred income taxes
    
    
    456
    
    
    
    2,861Income tax benefit of stock options exercised
    
    
    74
    
    
    
    Loss on disposition of assets
    
    
    12
    
    
    
    5Foreign exchange losses
    
    
    282
    
    
    
    27Stock-based compensation
    
    
    60
    
    
    
    218Changes in assets and liabilities:Receivables
    
    
    2,663
    
    
    
    (1,557
    )Inventories
    
    
    (4,227
    )
    
    
    (616
    )Income tax receivable
    
    
    1,247
    
    
    
    (2,750
    )Prepaid expenses and other assets
    
    
    740
    
    
    
    (700
    )Accounts payable
    
    
    297
    
    
    
    (282
    )Accrued representative commissions
    
    
    156
    
    
    
    442Accrued compensation
    
    
    (643
    )
    
    
    (554
    )Accrued severance and consolidation costs
    
    
    969
    
    
    
    Other liabilities
    
    
    (589
    )
    
    
    253Net cash provided by operating activities
    
    
    4,950
    
    
    
    1,330Cash flows from investing activities:Acquisition of property and equipment
    
    
    (1,616
    )
    
    
    (666
    )Purchase of license agreement
    
    
    
    
    
    
    (200
    )Net cash used by investing activities
    
    
    (1,616
    )
    
    
    (866
    )Cash flows from financing activities:Repurchase and retirement of common stock
    
    
    
    
    
    
    (321
    )Proceeds from exercise of stock options
    
    
    1,212
    
    
    
    13Net cash provided (used) by financing activities
    
    
    1,212
    
    
    
    (308
    )Effect of exchange rate changes on cash
    
    
    721
    
    
    
    188Net change in cash and cash equivalents
    
    $
    5,267
    
    
    
    344Cash and cash equivalents at beginning of period
    
    
    37,130
    
    
    
    24,811Cash and cash equivalents at end of period
    
    $
    42,397
    
    
    
    25,155Supplemental disclosure of cash flow information:Interest paid
    
    $
    
    
    
    
    12Income taxes (received) paid, net
    
    $
    (1,078
    )
    
    
    252


See accompanying notes to condensed consolidated financial statements

6



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SBS Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
December 31, 2003
(Unaudited)



|1) |  | Summary of Significant Accounting Policies
|-- |  | ------------------------------------------



| |  | The accounting policies as set forth in SBS Technologies, Inc.s (SBS or
the Company) Annual Report on Form 10-K for the year ended June 30, 2003
have been adhered to in preparing the accompanying interim condensed
consolidated financial statements. These statements are unaudited but
include all adjustments, consisting of normal recurring adjustments, that
SBS considers necessary for a fair presentation of the financial position,
results of operations, and cash flows for such interim periods. Results
for such interim periods are not necessarily indicative of results for a
full year. Certain reclassifications have been made to prior year balances
to conform to current year presentation.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Company adopted Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, (SFAS 142) on July 1, 2002. In
accordance with the provisions of SFAS 142, the Company completed the
required transitional goodwill impairment analysis during the year ended
June 30, 2003 and recorded a transitional impairment charge of
approximately $9.5 million ($6,058,000, net of income taxes) effective July
1, 2002.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Stock Based Compensation
| |  | ------------------------



| |  | The Company applies the intrinsic-value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations, to account for
its fixed-plan stock options. Under this method, compensation expense is
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. Substantially all stock-based
compensation reflected in reported net income (loss) relates to restricted
stock award grants to members of the Companys Board of Directors, as all
employee stock options granted under the Companys stock option plans had
an exercise price equal to the market value of the underlying common stock
on the grant date. Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation(SFAS 123), established accounting
and disclosure requirements using a fair-value-based method of accounting
for stock-based employee compensation plans. As permitted by SFAS 123, the
Company has elected to continue to apply the intrinsic-value-based method
of accounting described above, and has adopted only the disclosure
requirements of SFAS 123. The following table illustrates the effect on
net income (loss) and net income (loss) per common share if the Company had
applied the fair value recognition provisions of SFAS 123 to stock-based
employee compensation.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three months ended
    
    Six months endedThousands (except per share amounts)
    
    December 31,
    
    December 31,2003
    
    2002
    
    2003
    
    2002Net income (loss), as reported
    
    $
    1,532
    
    
    
    866
    
    
    
    342
    
    
    
    (5,375
    )Add: stock-based employee compensation included
in reported net income (loss), net of tax
effects
    
    
    20
    
    
    
    77
    
    
    
    37
    
    
    
    133Deduct: stock-based employee compensation
determined under fair value method for all
awards, net of tax effects
    
    
    (481
    )
    
    
    (880
    )
    
    
    (612
    )
    
    
    (1,885
    )Pro forma net income (loss)
    
    $
    1,071
    
    
    
    64
    
    
    
    (233
    )
    
    
    (7,127
    )Net income (loss) per common share  as reported
    
    $
    0.10
    
    
    
    0.06
    
    
    
    0.02
    
    
    
    (0.36
    )Net income (loss) per common share  pro forma
    
    
    0.07
    
    
    
    0.00
    
    
    
    (0.02
    )
    
    
    (0.49
    )Net income (loss) per common share assuming
dilution  as reported
    
    $
    0.10
    
    
    
    0.06
    
    
    
    0.02
    
    
    
    (0.36
    )Net income (loss) per common share assuming
dilution  pro forma
    
    
    0.07
    
    
    
    0.00
    
    
    
    (0.02
    )
    
    
    (0.49
    )


7



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SBS Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements  Continued
December 31, 2003
(Unaudited)



|2) |  | Receivables, net
|-- |  | ----------------



| |  | Receivables, net consist of the following:
| |  | ------------------------------------------

December 31,
    
    June 30,Thousands
    
    2003
    
    2003Accounts receivable
    
    $
    21,449
    
    
    
    24,000Less allowance for doubtful accounts
    
    
    (406
    )
    
    
    (836
    )$
    21,043
    
    
    
    23,164




|3) |  | Inventories
|-- |  | -----------



| |  | Inventories consist of the following:
| |  | -------------------------------------

December 31,
    
    June 30,Thousands
    
    2003
    
    2003Raw materials
    
    $
    9,713
    
    
    
    8,793Work in process
    
    
    6,269
    
    
    
    5,414Finished goods
    
    
    5,620
    
    
    
    2,609$
    21,602
    
    
    
    16,816




| |  | During the three and six month periods ended December 31, 2003,
approximately $225,000 and $455,000, respectively, of inventory previously
written down to zero cost had been sold.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4) |  | Goodwill and Intangible Assets
|-- |  | ------------------------------



| |  | The Company adopted SFAS 142 on July 1, 2002. In accordance with the
provisions of SFAS 142, the Company completed the required transitional
goodwill impairment analysis during the year ended June 30, 2003. As a
result, the Company recorded a transitional impairment charge of
approximately $9.5 million ($6,058,000 net of income taxes) which has been
reflected as a cumulative effect of a change in accounting principle in the
six months ended December 31, 2002 in the accompanying statements of
operations.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On April 1, 2003, the Company completed the required annual goodwill
impairment analysis for the fiscal year ended June 30, 2003 and the
estimated fair value of goodwill was determined to be in excess of its
carrying value, indicating the underlying goodwill was not impaired at that
date.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Changes in the carrying amount of goodwill for the six months ended
December 31, 2003 are as follows:
| |  | -----------------------------------------------------------------------------------------------------

Total Goodwill by Operating Segment

Thousands
    
    Americas
    
    Europe
    
    TotalBalance at June 30, 2003
    
    $
    3,496
    
    
    
    12,628
    
    
    
    16,124Foreign currency translation
adjustments
    
    
    143
    
    
    
    1,194
    
    
    
    1,337Balance at December 31, 2003
    
    $
    3,639
    
    
    
    13,822
    
    
    
    17,461


8



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##### Table of Contents



SBS Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements  Continued
December 31, 2003
(Unaudited)



| |  | The following table discloses information regarding the carrying amounts
and associated accumulated amortization for intangible assets subject to
amortization.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

Amortized Intangible Assets

GrossEstimated
    
    carrying
    
    Accumulated
    
    Net carryingThousands
    
    useful life
    
    amount
    
    amortization
    
    amountAs of December 31, 2003Core developed technology
    
    2 - 7 yrs
    
    $
    9,762
    
    
    
    6,258
    
    
    
    3,504License agreements
    
    2 - 5 yrs
    
    
    2,425
    
    
    
    1,537
    
    
    
    888Covenant not to compete
    
    3 - 5 yrs
    
    
    2,905
    
    
    
    1,642
    
    
    
    1,263Other intangibles
    
    8 - 17 yrs
    
    
    371
    
    
    
    144
    
    
    
    227Total
    
    
    
    $
    15,463
    
    
    
    9,581
    
    
    
    5,882As of June 30, 2003Core developed technology
    
    2 - 7 yrs
    
    $
    9,723
    
    
    
    5,679
    
    
    
    4,044License agreements
    
    2 - 5 yrs
    
    
    2,561
    
    
    
    1,424
    
    
    
    1,137Covenant not to compete
    
    3 - 5 yrs
    
    
    2,842
    
    
    
    1,365
    
    
    
    1,477Other intangibles
    
    8 - 17 yrs
    
    
    368
    
    
    
    120
    
    
    
    248Total
    
    
    
    $
    15,494
    
    
    
    8,588
    
    
    
    6,906




| |  | The following table summarizes estimated amortization expense for future
periods as follows:
| |  | --------------------------------------------------------------------------------------------

Estimated amortization expense:
    
    ThousandsRemainder of fiscal year ending June 30, 2004
    
    $
    1,111For the fiscal years ending:June 30, 2005
    
    
    1,734June 30, 2006
    
    
    1,310June 30, 2007
    
    
    1,181June 30, 2008
    
    
    512Thereafter
    
    
    34$
    5,882




|5) |  | Product Warranty Liability
|-- |  | --------------------------



| |  | The Companys customers receive a warranty, generally for a period of two
years, upon purchase of products. The Company accrues estimated costs to
repair or replace potentially defective products when products are shipped
and revenue is recognized. Estimated warranty costs are based upon prior
actual warranty costs for substantially similar products. The following
table presents the activity in the Companys product warranty liability for
the six months ended December 31, 2003:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ThousandsBalance at beginning of period
    
    $
    548Estimated warranty costs for product sales
    
    
    544Adjustments to settle warranty activity
    
    
    (441
    )Balance at end of period
    
    $
    651


9



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##### Table of Contents



SBS Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements  Continued
December 31, 2003
(Unaudited)



|6) |  | Earnings Per Share
|-- |  | ------------------



| |  | Net income (loss) per share is based on weighted average shares
outstanding. Net income (loss) per share  assuming dilution includes the
dilutive effects of potential common shares outstanding during the period.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three months ended
    
    Six months endedThousands (except per share amounts)
    
    December 31,
    
    December 31,2003
    
    2002
    
    2003
    
    2002Income before cumulative effect of change
in accounting principle
    
    
    1,532
    
    
    
    866
    
    
    
    342
    
    
    
    683Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,058
    )Net income (loss)
    
    
    1,532
    
    
    
    866
    
    
    
    342
    
    
    
    (5,375
    )Net income (loss) per shareWeighted-average common shares outstanding
    
    
    15,087
    
    
    
    14,598
    
    
    
    15,044
    
    
    
    14,607Income before cumulative effect of change
in accounting principle
    
    
    0.10
    
    
    
    0.06
    
    
    
    0.02
    
    
    
    0.05Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.41
    )Net income (loss)
    
    
    0.10
    
    
    
    0.06
    
    
    
    0.02
    
    
    
    (0.36
    )Net income (loss) per share  assuming dilutionWeighted-average common shares outstanding
used in earnings per share computations
    
    
    15,391
    
    
    
    14,627
    
    
    
    15,262
    
    
    
    14,607Income before cumulative effect of change
in accounting principle
    
    
    0.10
    
    
    
    0.06
    
    
    
    0.02
    
    
    
    0.05Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.41
    )Net income (loss)
    
    
    0.10
    
    
    
    0.06
    
    
    
    0.02
    
    
    
    (0.36
    )Shares Used in Per Share ComputationsWeighted average common shares outstanding
    
    
    15,087
    
    
    
    14,598
    
    
    
    15,044
    
    
    
    14,607Incremental shares from assumed conversions -
potential common shares
    
    
    304
    
    
    
    29
    
    
    
    218
    
    
    
    Shares used in computations  assuming dilution
    
    
    15,391
    
    
    
    14,627
    
    
    
    15,262
    
    
    
    14,607




| |  | Due to the reported net loss for the six months ended December 31, 2002,
25,644 potential common shares were not included in the computation of
earnings per share  assuming dilution because the effect would be
anti-dilutive. For the three and six month periods ended December 31, 2003,
options to purchase 1,565,902 and 1,780,819 shares of common stock,
respectively, were outstanding but were not included in the computation of
earnings per share  assuming dilution because the options exercise prices
were greater than the average market price of the common shares. For the
three and six month periods ended December 31, 2002, options to purchase
3,121,129 and 3,267,443 shares of common stock, respectively, were
outstanding but were not included in the computation of earnings per share
  assuming dilution because the options exercise prices were greater than
the average market price of the common shares.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10



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##### Table of Contents



SBS Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements  Continued
December 31, 2003
(Unaudited)



|7) |  | Comprehensive Income (Loss)
|-- |  | ---------------------------



| |  | Comprehensive income was $4.4 million and $3.5 million for the three and
six months ended December 31, 2003, respectively, and $2.3 million for the
three months ended December 31, 2002. Comprehensive loss of ($4.2) million
for the six months ended December 31, 2002, includes a transitional
impairment charge of $6,058,000, net of tax, as a result of the Companys
adoption of SFAS 142 effective July 1, 2002. The difference between
comprehensive income (loss) and net income (loss) was related to foreign
currency translation adjustments.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|8) |  | Segment Financial Data
|-- |  | ----------------------



| |  | As a result of changes in management responsibility, the Companys desire
to enhance its regional-based sales and service to the Companys European
customers and the June 2003 acquisition of SBS Canada (formerly Avvida
Systems), the Company changed its reportable segments to a structure based
on geographic markets. This change has enabled management to focus on
regional market development, alignment of sales channels with customers
product needs, and enhancement of customer service and satisfaction.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Company operates worldwide through two operating segments: the
Americas Group and the Europe Group. Each segment has management who
reports directly to the Companys Chief Executive Officer and its own
sales and distribution channels. The Americas Group consists of the
Companys operations based in the United States and Canada including the
engineering, test, and assembly activities in Albuquerque, New Mexico;
Mansfield, Massachusetts; Newark, California; Raleigh, North Carolina; St.
Paul, Minnesota; and Waterloo, Ontario, Canada, as well as the
manufacturing operations located in St. Paul, Minnesota. The Europe Group
consists of the Companys operations based in Germany which include the
engineering, test, assembly, and manufacturing activities located in
Augsburg and Mindelheim, Germany.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | SBS measures the results of operations for segments (segment profit (loss))
based on income (loss) before income taxes and the cumulative effect of
change in accounting principle and prior to (a) the allocation of corporate
overhead expenses other than marketing costs, (b) substantially all
amortization associated with acquisitions and (c) interest income and
interest expense from our U.S. operations. The accounting policies used to
measure segment profit (loss) are the same as those referred to in note 1.
Reportable segments for all periods presented have been reclassified to
conform to the current segment reporting structure.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Americas
    
    Europe
    
    Corporate &Thousands
    
    
    
    
    
    Group
    
    Group
    
    Unallocated (1)
    
    TotalThree month periods ended
December 31Gross sales
    
    
    2003
    
    
    
    24,731
    
    
    
    10,790
    
    
    
    
    
    
    
    35,521Inter-segment sales
    
    
    
    
    
    
    (1,291
    )
    
    
    (1,727
    )
    
    
    
    
    
    
    (3,048
    )Sales to external customers
    
    
    
    
    
    
    23,440
    
    
    
    9,063
    
    
    
    
    
    
    
    32,503Gross sales
    
    
    2002
    
    
    
    24,770
    
    
    
    5,866
    
    
    
    
    
    
    
    30,636Inter-segment sales
    
    
    
    
    
    
    (528
    )
    
    
    (848
    )
    
    
    
    
    
    
    (1,376
    )Sales to external customers
    
    
    
    
    
    
    24,242
    
    
    
    5,018
    
    
    
    
    
    
    
    29,260Segment profit (loss)
    
    
    2003
    
    
    
    3,601
    
    
    
    2,066
    
    
    
    (3,310
    )
    
    
    2,3572002
    
    
    
    3,218
    
    
    
    1,158
    
    
    
    (3,129
    )
    
    
    1,247


11



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##### Table of Contents



SBS Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements  Continued
December 31, 2003
(Unaudited)

Americas
    
    Europe
    Corporate &Thousands
    
    
    
    
    
    Group
    
    Group
    Unallocated (1)
    TotalSix month periods ended
December 31Gross sales
    
    
    2003
    
    
    
    46,266
    
    
    
    18,551
    
    
    
    
    
    
    
    64,817Inter-segment sales
    
    
    
    
    
    
    (2,549
    )
    
    
    (3,188
    )
    
    
    
    
    
    
    (5,737
    )Sales to external customers
    
    
    
    
    
    
    43,717
    
    
    
    15,363
    
    
    
    
    
    
    
    59,080Gross sales
    
    
    2002
    
    
    
    49,829
    
    
    
    10,292
    
    
    
    
    
    
    
    60,121Inter-segment sales
    
    
    
    
    
    
    (768
    )
    
    
    (2,260
    )
    
    
    
    
    
    
    (3,028
    )Sales to external customers
    
    
    
    
    
    
    49,061
    
    
    
    8,032
    
    
    
    
    
    
    
    57,093Segment profit (loss)
    
    
    2003
    
    
    
    3,480
    
    
    
    3,376
    
    
    
    (6,330
    )
    
    
    5262002
    
    
    
    5,551
    
    
    
    1,644
    
    
    
    (6,259
    )
    
    
    936Total AssetsAs of December 31, 2003
    
    
    
    
    
    
    35,470
    
    
    
    21,905
    
    
    
    76,800
    
    
    
    134,175As of June 30, 2003
    
    
    
    
    
    
    35,798
    
    
    
    17,540
    
    
    
    75,272
    
    
    
    128,610




---

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | The corporate and unallocated column includes amounts for corporate items. With regard to results of
operations, corporate and unallocated includes corporate overhead expenses other than corporate marketing
costs, interest income and interest expense from our U.S. operations, and substantially all amortization
associated with acquisitions. Corporate assets primarily include cash and cash equivalents from our U.S.
operations, deferred and current income tax assets, goodwill and intangible assets.



|9) |  | Employee Severance and Consolidation Costs
|-- |  | ------------------------------------------



| |  | On June 12, 2003, the Company announced the closure of its Carlsbad,
California facility and the consolidation of its manufacturing operations
into the Companys St. Paul, Minnesota facility, centralizing all
manufacturing in the United States to one facility. The total employee
severance and consolidation costs to be incurred as a result of the
consolidation are estimated at approximately $3.6 million. Included in the
estimated total costs of $3.6 million are approximately $140,000 of
severance and other costs to be recorded in future periods as incurred in
accordance with SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities(SFAS 146). The total estimated costs as a result of
the consolidation includes employee severance and related costs recorded
over the remaining service period, consolidation costs recorded as
incurred, lease termination costs recorded on the cease use date (all in
accordance with SFAS 146), and leasehold improvement impairment charges
recorded as a result of the announcement in accordance with SFAS No. 144,
Accounting for Impairment or Disposal of Long-Lived Assets.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12



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##### Table of Contents



SBS Technologies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements  Continued
December 31, 2003
(Unaudited)



| |  | The following table summarizes the accounting for the consolidation and
closure of the Companys Carlsbad, California facility:
| |  | -------------------------------------------------------------------------------------------------------------------------------

ThousandsEmployee
    
    Property
    
    Leaseservance and
    
    equipment
    
    termination
    
    OtherDescription
    
    related costs
    
    equipment
    
    charge
    
    costs
    
    TotalQuarter ended June 30, 2003Employee severance and
consolidation costs
    
    $
    290
    
    
    
    841
    
    
    
    
    
    
    
    
    
    
    $
    1,131Expenditures
    
    
    (66
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (66
    )Write-offs
    
    
    
    
    
    
    (841
    )
    
    
    
    
    
    
    
    
    
    
    (841
    )Accrued at June 30, 2003
    
    $
    224
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    224Six months ended December
31, 2003Employee severance and
consolidation costs
    
    $
    450
    
    
    
    
    
    
    
    1,485
    
    
    
    395
    
    
    $
    2,330Expenditures
    
    
    (631
    )
    
    
    
    
    
    
    (334
    )
    
    
    (395
    )
    
    
    (1,361
    )Accrued at December 31, 2003
    
    $
    43
    
    
    
    
    
    
    
    1,151
    
    
    
    
    
    
    $
    1,193




| |  | The lease termination charge, recorded on the cease use date as a result of
closure of the Companys Carlsbad, California facility, represents the
estimated fair value of the remaining future lease payments and related
obligations, net of estimated sublease income, over the term of the lease.
The remaining accrued employee severance and related costs are expected to
be paid over the next three months. The remaining costs represent
primarily lease obligations expected to be paid monthly through April 2006.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On July 22, 2002, due to the continued depressed economic and market
conditions impacting the Companys communications customers, SBS notified
19 full and part-time employees at our Madison, Wisconsin engineering
design center that their jobs had been eliminated. For the same reasons,
on September 30, 2002, SBS notified 22 additional employees that their jobs
were being eliminated and 12 other employees were notified that their jobs
had been eliminated during the three months ended December 31, 2002. Also,
SBS paid lease termination fees of approximately $186,000 in connection
with the closure of certain locations during the three months ended
December 31, 2002. As a result, for the six months ended December 31,
2002, SBS recorded employee severance and consolidation costs of $598,000.
There are no costs remaining to be paid related to these activities at
December 31, 2003.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13



---



##### Table of Contents











| |  | Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
| |  | ----------------------------------------------------------------------------------------------



| |  | For a description of SBS critical accounting policies and an understanding of
the significant factors that influenced SBS performance during the three and
six months ended December 31, 2003 and 2002, this Managements Discussion and
Analysis of Financial Condition and Results of Operations (MD&A) should be
read in conjunction with the consolidated financial statements, including the
related notes, appearing in Item 1 of this Form 10-Q, as well as our Annual
Report on Form 10-K for the year ended June 30, 2003.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Company Overview
| |  | ----------------



| |  | We design and build open-architecture embedded computer products that enable
original equipment manufacturers to serve the commercial, communications and
government markets. Our embedded computer products are used in a wide range of
industries, including telecommunications, medical electronics, industrial
automation and defense. Embedded computers are put inside or made part of
larger systems to process information, control machines, move computer data
between machines, and interact with people. They are found in machines ranging
from aircraft to complex medical equipment, and are used for a variety of
applications, such as retrieving satellite information and controlling
manufacturing assembly lines.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We serve a broad range of customers. We currently list more than 400 products
in the product section of our website, www.sbs.com. We help our customers get
to market more quickly, more reliably and more economically by providing a wide
range of standard and customized embedded computer products. Our products
include processor boards, input/output modules, networking devices, and
complete computer systems.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Technology drives our growth. As embedded computer applications expand, we
broaden our product lines to meet our customers needs and to attract new
customers. We invest in technology and customer service so that we can grow
with our customers. We have grown, and intend to continue to do so, through a
combination of internal growth and acquisitions. We grow by adding new products
and improving existing products through our research and development program,
attracting new customers with our products and service, and acquiring other
companies. We completed eleven acquisitions between 1992 and June 30, 2003 that
broadened our product offerings and customer base.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Executive Summary
| |  | -----------------



| |  | During the quarter and six months ended December 31, 2003, we noted:
| |  | --------------------------------------------------------------------



| |  |  |  | Sales for the quarter were $32.5 million, our strongest quarterly sales in more than two years;
| |  | - |  | -----------------------------------------------------------------------------------------------



| |  |  |  | Net income per share  assuming dilution for the quarter was $0.10, compared with $0.06 for
the comparable period of the prior year.
| |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  |  |  | Included in the results for the quarter were employee severance and
consolidation costs associated with the closure of the Carlsbad,
California facility of approximately $276,000 which negatively impacted
net income per common share  assuming dilution by ($0.01) on an after tax
basis. Substantially all of the costs associated with this consolidation
effort have been recorded as of December 31, 2003.
| |  |  |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  |  | Our book-to-bill ratio for the quarter was 1.17 to 1, as total bookings
exceeded $38 million, our strongest bookings quarter in more than two
years; and our book-to-bill ratio for the six months was 1.15 to 1.
| |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  |  |  | Book-to-bill ratio represents the net value of customer orders received
and booked each period divided by total sales.
| |  |  |  |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  |  | Order backlog increased for the fourth consecutive quarter to $45.5
million as of December 31, 2003, compared to $38.9 million as of September
30, 2003;
| |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  |  |  | Order backlog represents customer orders that have been contracted for
future delivery. Accordingly, these orders have not yet been recognized as
revenue, but represent potential future revenue.
| |  |  |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  |  | Six Design Wins were achieved during the quarter.
| |  | - |  | -------------------------------------------------



| |  |  |  |  | Each reported design win represents an initial purchase order of a minimum
of $100,000 and is forecasted to produce a minimum of $500,000 in sales
annually when in production.
| |  |  |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  |  |  | By end market, the design wins include four in the government market, one
in the commercial market, and one in the communications market.
| |  |  |  |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  |  | During the quarter, one commercial customer represented approximately 10%
of our total sales and one communications customer represented
approximately 9% of our total sales. We had no other customer whose sales
represented more than 5% of our total.
| |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14



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##### Table of Contents





| |  | Financial Highlights
| |  | --------------------



| |  | Select financial highlights during the three and six months ended December 31,
2003 compared to the three and six months ended December 31, 2002 and the
quarter ended September 30, 2003 follows:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three months ended
    
    Six months endedThousands (except
    
    
    December 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    December 31,%
    
    Sept. 30,
    
    %
    
    
    
    %per share amounts)
    
    2003
    
    2002
    
    change
    
    2003
    
    change
    
    2003
    
    2002
    
    changeSales
    
    $
    32,503
    
    
    $
    29,260
    
    
    
    11.1
    %
    
    $
    26,577
    
    
    
    22.3
    %
    
    $
    59,080
    
    
    $
    57,093
    
    
    
    3.5
    %Net income (loss) (*)
    
    $
    1,532
    
    
    $
    866
    
    
    
    76.9
    %
    
    $
    (1,190
    )
    
    
    228.7
    %
    
    $
    342
    
    
    $
    (5,375
    )
    
    
    106.4
    %Net income (loss)
per share  assuming
dilution (**)
    
    $
    0.10
    
    
    $
    0.06
    
    
    
    
    
    
    $
    (0.08
    )
    
    
    
    
    
    $
    0.02
    
    
    $
    (0.36
    )




| | * |  | The financial results for the six-months ended December 31, 2002 include a transitional impairment charge of $6,058,000,
net of tax, or ($0.41) per common share  assuming dilution, for the cumulative effect of the change in accounting for
goodwill, resulting from SBS adoption of SFAS 142 effective July 1, 2002.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ** |  | Employee severance and consolidation costs associated with the closure of the Carlsbad, California facility negatively
impacted net income per common share  assuming dilution by approximately ($0.01) and ($0.10) on an after tax basis for the
three and six-months ended December 31, 2003, respectively.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | See detailed analysis of the financial results below.
| |  | -----------------------------------------------------



| |  | Results of Operations(references to fiscal 2004 and fiscal 2003 relate to interim periods of the
fiscal years ending on June 30)
| |  | --------------------------------------------------------------------------------------------------------------------------------



| |  | The following table sets forth for the periods indicated certain operating data
as a percentage of sales:
| |  | ---------------------------------------------------------------------------------------------------------

Three months ended
    
    Six months endedDecember 31,
    
    December 31,2003
    
    2002
    
    2003
    
    2002Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    50.7
    %
    
    
    48.4
    %
    
    
    51.0
    %
    
    
    50.0
    %Gross profit
    
    
    49.3
    %
    
    
    51.6
    %
    
    
    49.0
    %
    
    
    50.0
    %Selling, general and administrative expense
    
    
    24.6
    %
    
    
    29.2
    %
    
    
    26.4
    %
    
    
    29.4
    %Research and development expense
    
    
    14.6
    %
    
    
    16.2
    %
    
    
    16.2
    %
    
    
    16.5
    %Employee severance and consolidation costs
    
    
    0.8
    %
    
    
    0.8
    %
    
    
    3.9
    %
    
    
    1.0
    %Amortization of intangible assets
    
    
    1.7
    %
    
    
    1.5
    %
    
    
    1.9
    %
    
    
    1.8
    %Operating income
    
    
    7.6
    %
    
    
    3.9
    %
    
    
    0.6
    %
    
    
    1.3
    %Interest and other income, net
    
    
    0.3
    %
    
    
    0.3
    %
    
    
    0.8
    %
    
    
    0.4
    %Foreign exchange losses
    
    
    (0.6
    )%
    
    
    0.0
    %
    
    
    (0.5
    )%
    
    
    (0.1
    )%Income before income taxes and cumulative
effect of change in accounting principle
    
    
    7.3
    %
    
    
    4.3
    %
    
    
    0.9
    %
    
    
    1.6
    %Income tax benefit
    
    
    2.5
    %
    
    
    1.3
    %
    
    
    0.3
    %
    
    
    0.4
    %Income before cumulative effect of change
in accounting principle
    
    
    4.7
    %
    
    
    3.0
    %
    
    
    0.6
    %
    
    
    1.2
    %Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10.6
    )%Net income (loss)
    
    
    4.7
    %
    
    
    3.0
    %
    
    
    0.6
    %
    
    
    (9.4
    )%


15



---



##### Table of Contents





| |  | Three and Six Month Periods Ended December 31, 2003 compared to the Three and Six Month Periods Ended December 31, 2002
| |  | -----------------------------------------------------------------------------------------------------------------------



| |  | Sales
| |  | -----



| |  | Our total sales during the three and six months ended December 31, 2003
compared to the three and six months ended December 31, 2002 and the quarter
ended September 30, 2003 follows:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three months ended
    
    Six months endedDecember 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    December 31,%
    
    Sept. 30,
    
    %
    
    
    
    %Thousands
    
    2003
    
    2002
    
    change
    
    2003
    
    change
    
    2003
    
    2002
    
    changeSales
    
    $
    32,503
    
    
    $
    29,260
    
    
    
    11.1
    %
    
    $
    26,577
    
    
    
    22.3
    %
    
    $
    59,080
    
    
    $
    57,093
    
    
    
    3.5
    %




| |  | For the second quarter of fiscal 2004, sales increased $3.2 million compared to
the same period of fiscal 2003, of which approximately $950,000 is the result
of the impact of a weakening U.S. dollar on the translation of our Europe Group
financial statements. On a sequential basis, sales increased $5.9 million or
22.3% compared with sales for the prior quarter of fiscal 2004. Sales for the
second quarter included approximately $2.0 million of sales that were delayed
at the end of the quarter ended September 30, 2003 due to production issues
associated with certain advanced technology systems.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | For the six months ended December 31, 2003, sales increased $2.0 million
compared to the same period of fiscal 2003, of which approximately $1.4 million
is the result of the impact of a weakening U.S. dollar on the translation of
the Companys Europe Group financial statements. Sales for the three and six
months ended December 31, 2003, include approximately $0.3 million and $0.6
million contributed from the acquisition of SBS Canada (formerly Avvida
Systems) in June 2003.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Sales by end market for the current quarter and year-to-date periods of fiscal
2004 compare to the comparable periods of fiscal 2003 and the prior fiscal
quarter as indicated below:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

SALES BY END MARKET
(dollars in thousands)

Dec. 31,
    
    % of
    
    Dec. 31,
    
    % of
    
    Sept. 30,
    
    % ofThree months ended:
    
    2003
    
    total
    
    2002
    
    total
    
    2003
    
    totalGovernment
    
    $
    16,713
    
    
    
    51
    %
    
    $
    16,180
    
    
    
    55
    %
    
    $
    13,140
    
    
    
    49
    %Commercial
    
    
    8,865
    
    
    
    28
    %
    
    
    9,584
    
    
    
    33
    %
    
    
    8,662
    
    
    
    33
    %Communications
    
    
    6,925
    
    
    
    21
    %
    
    
    3,496
    
    
    
    12
    %
    
    
    4,775
    
    
    
    18
    %Total
    
    $
    32,503
    
    
    
    100
    %
    
    $
    29,260
    
    
    
    100
    %
    
    $
    26,577
    
    
    
    100
    %


Dec. 31,
    
    % of
    
    Dec. 31,
    
    % ofSix months ended:
    
    2003
    
    total
    
    2002
    
    totalGovernment
    
    $
    29,853
    
    
    
    50
    %
    
    $
    28,825
    
    
    
    50
    %Commercial
    
    
    17,527
    
    
    
    30
    %
    
    
    20,673
    
    
    
    36
    %Communications
    
    
    11,700
    
    
    
    20
    %
    
    
    7,595
    
    
    
    14
    %Total
    
    $
    59,080
    
    
    
    100
    %
    
    $
    57,093
    
    
    
    100
    %




| |  | For the three months ended December 31, 2003, sales to government customers
increased 3.3%, sales to commercial customers decreased 7.5% and sales to
communications customers increased 98.1%, all compared with the comparable
period of the prior fiscal year. For the six months ended December 31, 2003,
sales to government customers increased 3.6%, sales to commercial customers
decreased 15.2% and sales to communications customers increased 54.0%, all
compared with the six months ended December 31, 2002. To align with current
management responsibility, sales to a majority of our enterprise customers are
reflected as sales to commercial customers.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Looking forward, we believe the increased bookings activity noted during the
first quarter of this fiscal year that continued through the December quarter
is a clear indicator that conditions within our markets continue to improve.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16



---



##### Table of Contents





| |  | Our quoting activity is increasing and we believe, based on their forecasts,
many of our customers are beginning to be more optimistic. In the government
market, the demand for new systems and upgrades to existing systems continues
to improve. In addition, our customers that address the wireless equipment and
network monitoring portion of the communications market, and our semiconductor
manufacturing equipment customers in the commercial market, are increasing
their forecasts and orders for our products. In line with our strong bookings
in fiscal 2004, we expect consolidated sales to be between $33 million and $34
million for the quarter ending March 31, 2004; however, actual results may
vary.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Gross Profit
| |  | ------------



| |  | Gross profit during the three and six months ended December 31, 2003 compared
to the three and six months ended December 31, 2002 and the quarter ended
September 30, 2003 follows:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three months ended
    
    Six months endedDecember 31,
    
    
    
    Sept. 30,
    
    
    
    
    
    December 31,Increase/
    
    
    
    Incr/

    


    
    Incr/Thousands
    
    2003
    
    2002
    
    (decrease)
    
    2003
    
    (decr)
    
    2003
    
    2002
    
    (decr)Gross profit
    
    $
    16,034
    
    
    $
    15,105
    
    
    $
    929
    
    
    $
    12,933
    
    
    $
    3,101
    
    
    $
    28,967
    
    
    $
    28,559
    
    
    $
    408Gross profit as a
percent of sales
    
    
    49.3
    %
    
    
    51.6
    %
    
    
    
    
    
    
    48.7
    %
    
    
    
    
    
    
    49.0
    %
    
    
    50.0
    %Utilization of
inventory
previously written
down to zero cost
    
    $
    225
    
    
    $
    175
    
    
    
    
    
    
    $
    230
    
    
    
    
    
    
    $
    455
    
    
    $
    550




| |  | Gross profit as a percent of sales for the three and six months ended December
31, 2003, decreased from levels noted in fiscal 2003 principally as a result of
a higher proportion of sales of lower margin products in relation to total
sales. The increase for this quarter in gross profit as a percent of sales
compared to the preceding quarter is primarily due to the change in sales mix
as a result of a higher proportion of sales to our government customers which
traditionally represent higher margin sales. For the quarter ending March 31,
2004, we anticipate gross profit as a percentage of sales to be similar to the
percentage experienced during the quarter ended December 31, 2003; however,
actual results may vary.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Selling, General and Administrative Expense
| |  | -------------------------------------------



| |  | Selling, general and administrative (SG&A) expense during the three and six
months ended December 31, 2003 as compared to the three and six months ended
December 31, 2002 follows:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three months ended
    
    
    
    
    
    Six months endedDecember 31,
    
    
    
    
    
    December 31,Increase/
    
    
    
    Increase/Thousands
    
    2003
    
    2002
    
    (decrease)
    
    2003
    
    2002
    
    (decrease)SG&A expense
    
    $
    7,998
    
    
    $
    8,532
    
    
    $
    (534
    )
    
    $
    15,616
    
    
    $
    16,766
    
    
    $
    (1,150
    )As a percent of sales
    
    
    24.6
    %
    
    
    29.2
    %
    
    
    
    
    
    
    26.4
    %
    
    
    29.4
    %




| |  | For the three and six months ended December 31, 2003, SG&A expense decreased
6.3% and 6.9%, respectively, compared to the same periods of the prior fiscal
year, due primarily to the cost reduction efforts implemented in connection
with the consolidation of operations during the past several quarters,
partially offset by the costs added as a result of the acquisition of SBS
Canada in June 2003. For these reasons, together with increased sales, SG&A
expense as a percentage of sales declined in fiscal 2004 compared with fiscal
2003.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17



---



##### Table of Contents





| |  | Research and Development Expense
| |  | --------------------------------



| |  | Research and development (R&D) expense during the three and six months ended
December 31, 2003 as compared to the three and six months ended December 31,
2002 follows:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three months ended
    
    
    
    
    
    Six months endedDecember 31,
    
    
    
    
    
    December 31,Increase/
    
    
    
    Increase/Thousands
    
    2003
    
    2002
    
    (decrease)
    
    2003
    
    2002
    
    (decrease)R&D expense
    
    $
    4,747
    
    
    $
    4,735
    
    
    $
    12
    
    
    $
    9,558
    
    
    $
    9,421
    
    
    $
    137As a percent of sales
    
    
    14.6
    %
    
    
    16.2
    %
    
    
    
    
    
    
    16.2
    %
    
    
    16.5
    %




| |  | For the three and six months ended December 31, 2003, research and development
(R&D) expense remained consistent with prior periods as the cost reductions
resulting from the consolidation of the communications operations and the
closure of our Carlsbad, California facility were offset by increases due to
the addition of research and development employees as a result of the
acquisition of SBS Canada. R&D expense as a percentage of sales declined
during fiscal 2004 due primarily to the increase in sales.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Employee Severance and Consolidation Costs
| |  | ------------------------------------------



| |  | On June 12, 2003, we announced that we would be closing our Carlsbad,
California facility and consolidating its manufacturing operations into our St.
Paul, Minnesota facility, centralizing all manufacturing in the United States
to one facility. This consolidation was completed in August, 2003. As a result
of these actions, we recorded employee severance and consolidation costs
totaling $276,000 and $2.3 million during the three-month and six-month periods
ended December 31, 2003, respectively.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | These costs included the following for the three and six months ended December 31, 2003:
| |  | ----------------------------------------------------------------------------------------



| |  |  | Employee severance and related costs of $21,000 and $450,000, respectively,
(recorded over the remaining service period in accordance with SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities) due to the
reduction of our workforce. Of this amount, approximately $43,000 was accrued at
December 31, 2003; we expect to pay substantially all of these costs during the
quarter ending March 31, 2004. The remaining severance and related costs
associated with the closure of the Carlsbad, California facility, estimated not to
exceed $40,000, will be recorded as incurred during the remainder of fiscal 2004.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other consolidation costs of $120,000 and $395,000, respectively, (recorded as
incurred in accordance with SFAS 146) as a result of the consolidation of our
communications operations to other facilities. There were no accrued consolidation
costs at December 31, 2003. The remaining consolidation related costs are
estimated not to exceed $100,000 and will be recorded as incurred during the
remainder of fiscal 2004.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Lease termination costs of $135,000 and $1,485,000, respectively, (recorded on the
cease use date in accordance with SFAS 146) as a result of the closure of our
Carlsbad, California facility in August 2003. The lease termination costs
represent the estimated fair value of the remaining future lease payments and
related obligations, net of estimated sublease income, over the term of the lease.
The remaining lease obligations are expected to be paid monthly through April
2006.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Employee severance and consolidation costs of $598,000 recorded during the six
months ended December 31, 2002 were primarily the result of workforce
reductions implemented as a result of the depressed market conditions impacting
our communications market customers.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Amortization of Intangible Assets
| |  | ---------------------------------



| |  | For the three and six months ended December 31, 2003, amortization of
intangible assets was $553,000 and
$1.1 million, respectively, compared to $452,000 and $1.0 million for the
comparable periods of fiscal 2003. Amortization expense increased in fiscal
2004 due to the purchased identifiable intangible assets recorded in connection
with the acquisition of SBS Canada (formerly Avvida Systems) in June 2003. In
addition, amortization expense in fiscal 2003 included a write-down of $136,000
recorded in connection with a prepaid license agreement for a product that SBS
determined during the quarter ended September 30, 2002, would not be brought to
market.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

18



---



##### Table of Contents





| |  | Interest and Other Income, Net
| |  | ------------------------------



| |  | For the three and six months ended December 31, 2003, net interest and other
income of $104,000 and $446,000, respectively, included interest received in
September 2003 in connection with income tax refunds of payments made in prior
periods of approximately $250,000. Excluding the interest on the tax refunds
in fiscal 2004, net interest and other income represented primarily interest
income associated with surplus cash, which declined from fiscal 2003 levels due
to lower interest rates.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Foreign Exchange Losses
| |  | -----------------------



| |  | For the three and six months ended December 31, 2003, foreign exchange losses
of $207,000 and $282,000, respectively, represent primarily realized and
unrealized losses on certain inter-company transactions that are denominated in
non-functional currencies due to changes in currency exchange rates as a result
of the weakening of the U.S. dollar during fiscal 2004.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Income Tax Expense
| |  | ------------------



| |  | For the three and six months ended December 31, 2003, income tax expense was
recorded based upon our estimated worldwide effective tax rates for fiscal year
2004 of 35.0%. This compares to income tax expense recorded for the three and
six months ended December 31, 2002, using estimated worldwide effective tax
rates of 30.5% and 27.0%, respectively. The change in the estimated worldwide
effective income tax rates was due principally to the impact of a shift in the
mix of pre-tax income from domestic and foreign sources.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Cumulative Effect of Change in Accounting Principle
| |  | ---------------------------------------------------



| |  | For the six month period ended December 31, 2002, we recorded a transitional
impairment charge of $9.5 million ($6,058,000 net of tax), reported as a
cumulative effect of change in accounting principle, as a result of our
adoption of Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, (SFAS 142) effective July 1, 2002.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Earnings Per Share
| |  | ------------------



| |  | For the three and six months ended December 31, 2003, net income per common
share and net income per common share  assuming dilution were $0.10 and $0.02,
respectively. This compares to net income per common share and net income per
common share  assuming dilution of $0.06 for the three month period ended
December 31, 2002, and income per share before the cumulative effect of the
change in accounting principle of $0.05 during the six month period ended
December 31, 2002. For the six-month period ended December 31, 2002, net loss
per share and net loss per common share  assuming dilution of $(0.36) included
the impact of the cumulative effect of change in accounting for goodwill of
$(0.41) per common share as a result of our adoption of SFAS 142 effective July
1, 2002.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Review of Business Segments
| |  | ---------------------------



| |  | During fiscal 2004, we changed our reportable segments to a structure based on
geographic markets as a result of changes in management responsibility, our
desire to enhance its regional-based sales and service to our European
customers, and the June 2003 acquisition of SBS Canada (formerly Avvida
Systems). This change has enabled management to focus on regional market
development, alignment of sales channels with customers product needs, and
enhancement of customer service and satisfaction.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We operate worldwide through two operating segments: the Americas Group and
the Europe Group. Each segment has management who report directly to our Chief
Executive Officer and its own sales and distribution channels. The Americas
Group consists of our operations based in the United States and Canada,
including the engineering, test, and assembly activities in Albuquerque, New
Mexico; Mansfield, Massachusetts; Newark, California; Raleigh, North Carolina;
St. Paul, Minnesota; and Waterloo, Ontario, Canada; as well as the
manufacturing operations located in St. Paul, Minnesota. The Europe Group
consists of our operations based in Germany, which include the engineering,
test, assembly, and manufacturing activities located in Augsburg and
Mindelheim, Germany.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The following is a discussion of sales to external customers and segment profit
(loss) for each reportable segment. We measure the results of operations for
segments (Segment Profit (Loss)) based on income (loss) before income taxes and
the cumulative effect of change in accounting principle and before:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the allocation of corporate overhead expenses other than marketing costs;
| | - |  | -------------------------------------------------------------------------



| |  |  | substantially all amortization expense associated with acquisitions; and
| | - |  | ------------------------------------------------------------------------



| |  |  | interest income earned on U.S. operations cash balances.
| | - |  | --------------------------------------------------------

19



---



##### Table of Contents



Americas Group

Three months ended
    
    Six months endedDecember 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    December 31,%
    
    Sept. 30,
    
    %
    
    
    
    %Thousands
    
    2003
    
    2002
    
    change
    
    2003
    
    change
    
    2003
    
    2002
    
    changeSales to External Customers
    
    $
    23,440
    
    
    $
    24,242
    
    
    
    (3.3
    )%
    
    $
    20,277
    
    
    
    15.6
    %
    
    $
    43,717
    
    
    $
    49,061
    
    
    
    (10.9
    %)Segment Profit (Loss)
    
    $
    3,601
    
    
    $
    3,218
    
    
    
    11.9
    %
    
    $
    (121
    )
    
    
    3076
    %
    
    $
    3,480
    
    
    $
    5,551
    
    
    
    (37.3
    %)




|Note |  | segment profit (loss) for the three and six months ended December 31, 2003 includes approximately $0.2 million and
$2.2 million, respectively, of employee severance and consolidation costs as a result of the consolidation of our
communications operations that resulted in the closure of our Carlsbad, California facility in August 2003.
|---- | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Sales to External Customers. For the three and six months ended December 31,
2003, sales to external customers decreased approximately $802,000, or (3.3)%,
and approximately $5.3 million, or (10.9)%, respectively, compared to the
comparable periods of the prior fiscal year as unit shipments declined across
all product lines. On a sequential basis, sales to external customers
increased $3.2 million, or 15.6%, compared to the prior quarter. Sales to
external customers for the second quarter include approximately $2.0 million of
sales that were delayed at the end of the first quarter due to production
issues associated with certain advanced technology systems. The Groups sales
to external customers for the three and six months ended December 31, 2003,
exclude approximately $800,000 and $2.1 million of sales that, after the
transfer of sales and support for our European customers to our German
operations, were included in sales for the Europe Group. Sales contributed by
the acquisition of SBS Canada (formerly Avvida Systems) in June 2003 of
approximately $0.3 million and $0.6 million for the three and six months ended
December 31, 2003 partially offset the decline in sales in fiscal 2004.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Segment Profit (Loss).Segment profit increased $383,000, or 11.9%, for the
three months ended December 31, 2003, and segment profit decreased
approximately $2.1 million, or (37.3)%, for the six months ended December 31,
2003, both compared to the comparable periods of the prior fiscal year. On a
sequential basis, segment profit increased
$3.7 million, or 15.6%, compared with the prior quarter. Segment profit in the
six months of fiscal 2004 declined primarily as a result of approximately $2.2
million of employee severance and consolidation costs being recorded from the
consolidation of our communications operations that resulted in the closure of
our Carlsbad, California facility in August 2003, partially offset by a change
in sales mix to higher margin products together with reduced SG&A expenses as a
result of the actions discussed above. For these reasons, segment profit as a
percentage of sales to external customers was 15.4% and 8.0% for the three and
six months of fiscal 2004, compared with 13.3% and 11.3% for the same periods
of fiscal 2003.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Europe Group

Three months ended
    
    Six months endedDecember 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    December 31,%
    
    Sept. 30,
    
    %
    
    
    
    %Thousands
    
    2003
    
    2002
    
    change
    
    2003
    
    change
    
    2003
    
    2002
    
    changeSales to External
Customers
    
    $
    9,063
    
    
    $
    5,018
    
    
    
    80.6
    %
    
    $
    6,299
    
    
    
    43.9
    %
    
    $
    15,363
    
    
    $
    8,032
    
    
    
    91.3
    %Segment Profit
    
    $
    2,066
    
    
    $
    1,158
    
    
    
    78.4
    %
    
    $
    1,310
    
    
    
    57.7
    %
    
    $
    3,376
    
    
    $
    1,644
    
    
    
    105.3
    %




| |  | Sales to External Customers.Unit shipments of the Groups processor board
products increased for all periods resulting in increased sales to external
customers. For the three and six months ended December 31, 2003, sales to
external customers increased $4.0 million and $7.3 million, respectively,
compared to the comparable periods of the prior fiscal year, of which
approximately $950,000 and $1.4 million, respectively, was the result of
changes in currency exchange rates used to translate the Groups financial
statements to U.S. dollars. On a sequential basis, sales to external customers
increased $2.8 million, compared with the prior quarter. The Groups sales to
external customers for the three and six months ended December 31, 2003
included an increase of approximately $800,000 and $2.1 million, respectively,
of sales that, before the transfer of sales and support for our European
customers to our German operations, would have been included in sales of the
Americas Group.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

20



---



##### Table of Contents





| |  | Segment Profit.For the three and six month periods ended December 31, 2003,
segment profit increased $908,000 or 78.4%, and $1.7 million, or 105.3%,
respectively, compared to the comparable periods of the prior year, due
primarily to the increase in sales, offset partially by an increase in SG&A and
R&D expenses commensurate with the growth in the business. On a sequential
basis, segment profit increased $756,000, or 57.7% compared with the prior
quarter of fiscal 2004. For these reasons, segment profit as a percentage of
sales was 22.8% and 22.0% for the three and six month periods of fiscal 2004,
respectively, compared to 23.1% and 20.5% for the comparable periods of fiscal
2003.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Liquidity and Financial Condition
| |  | ---------------------------------



| |  | We use a combination of internally generated funds, the sale of equity
securities, and bank borrowings to finance our operations, acquisitions,
working capital requirements and capital expenditures. Management believes that
our internally generated funds will be sufficient to finance our current
operations and capital expenditures, excluding acquisitions, for at least the
next twelve months. Because long-term cash flow cannot be predicted with
certainty, in the future we might require external financing through bank
facilities, the sale of equity or debt securities, or other sources of capital.
The sale of any equity or debt securities, if required, may result in
additional dilution to the shareholders. We cannot be certain that additional
financing will be available, in amounts, or on terms, acceptable to us.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Cash of $42.4 million at December 31, 2003 represents an increase of $5.3
million during the six months ended December 31, 2003. Sources of the increase
include:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

Cash flows from:
    
    ThousandsOperating activities
    
    $
    4,950Investing activities
    
    
    (1,616
    )Financing activities
    
    
    1,212Net effect of exchange rate changes on cash
    
    
    721$
    5,267




| |  | Net cash inflows are comprised of cash provided by operating activities of $4.9
million, which includes cash flows of $3.1 million from depreciation and
amortization and $2.1 million from the receipt of income tax refunds of
payments made in prior periods, and cash provided by financing activities of
$1.2 million as a result of the exercise of stock options. However, future cash
inflows as a result of employee stock option exercises are difficult to predict
with certainty. These cash inflows were offset by $1.6 million used for the
purchase of capital equipment during the period as we upgraded some of our
manufacturing and test equipment. During the six month period ended December
31, 2003, the decrease in accounts receivable provided cash for operations of
$2.7 million, and the increase in inventory levels in line with the current
level of business used cash from operations of $4.2 million, both excluding the
impact of foreign currency translation adjustments. Liabilities also increased
by approximately $685,000, consistent with our current level of business.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As of the date of this report, we do not have any material capital expenditure
commitments.
| |  | -------------------------------------------------------------------------------------------



| |  | As of December 31, 2003, we were committed under noncancelable operating leases
that expire at various dates through fiscal 2008, as described in Managements
Discussion and Analysis in our Annual Report on Form 10-K for the fiscal year
ended June 30, 2003.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | For the six-month period ended December 31, 2003, there was no significant
impact from inflation.
| |  | -------------------------------------------------------------------------------------------------



| |  | Business Outlook
| |  | ----------------



| |  | We believe the increased bookings activity noted during the first quarter of
this fiscal year that continued through the December quarter is a clear
indicator that conditions within our markets continue to improve. Our quoting
activity is increasing and we believe, based on their forecasts, many of our
customers are beginning to be more optimistic. In the government market, the
demand for new systems and upgrades to existing systems continues to improve.
In addition, our customers that address the wireless equipment and network
monitoring portion of the communications market, and our semiconductor
manufacturing equipment customers in the commercial market, are increasing
their forecasts and orders for our products. In line with our strong bookings
in fiscal 2004, we expect consolidated sales to be between $33 million and $34
million for the quarter ending March 31, 2004; however, actual results may
vary.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Management expects that corporate representatives of SBS will meet privately
during the quarter with investors, investment analysts, the media and others,
and may reiterate the Business Outlook published in this Form 10-Q. At the
same time, this Form 10-Q and the included Business Outlook will remain
publicly available on our Web site
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | (www.sbs.com). Unless a notice stating otherwise is published, the public can
continue to rely on the Business Outlook published on the Web site as
representing our current expectations on matters covered.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Recently Issued Accounting Standards
| |  | ------------------------------------



| |  | In December 2003, the SEC issued Staff Accounting Bulletin (SAB) No. 104,
Revenue Recognition. SAB 104 revises or rescinds portions of the interpretive
guidance included in Topic 13 of the codification of staff accounting bulletins
in order to make this interpretive guidance consistent with current
authoritative accounting and auditing guidance and SEC rules and regulations.
The adoption of SAB 104 did not impact our results of operations or financial
condition.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------






| |  | Item 3  Quantitative and Qualitative Disclosures about Market Risk
| |  | -------------------------------------------------------------------



| |  | SBS liquid investment is cash invested in either money market accounts or in
overnight repurchase agreements. Due to the nature of these investments, we
believe that the market risk related to these investments is minimal. As a
result of our German and Canadian operating and financing activities, we are
exposed to market risk from changes in foreign currency exchange rates. As of
December 31, 2003, we have no plans or intentions to enter into foreign
exchange forward contracts to reduce exposure to changes in foreign currency
exchange rates.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------






| |  | Item 4  Controls and Procedures
| |  | --------------------------------



| |  | Quarterly Controls Evaluation and Related CEO and CFO Certifications
| |  | --------------------------------------------------------------------



| |  | As of the end of the period covered by this Quarterly Report on Form 10-Q, we
evaluated the effectiveness of the design and operation of disclosure controls
and procedures (Disclosure Controls). The controls evaluation was done under
the supervision and with the participation of management, including our Chief
Executive Officer (CEO) and Chief Financial Officer (CFO).
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Attached as Exhibits to this Quarterly Report on Form 10-Q are certifications
of the CEO (Exhibit 31.1) and the CFO (Exhibit 31.2), which are required in
accordance with Rule 13a-14 of the Securities Exchange Act of 1934 (the
Exchange Act). This Controls and Procedures section includes the information
concerning the controls evaluation referred to in the certifications and it
should be read in conjunction with the certifications for a more complete
understanding of the topics presented.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Disclosure Controls and Internal Controls
| |  | -----------------------------------------



| |  | Disclosure Controls are procedures designed to ensure that information required
to be disclosed in our reports filed under the Exchange Act, such as this
Quarterly Report, is recorded, processed, summarized and reported within the
time periods specified in the U.S. Securities and Exchange Commissions rules
and forms. Disclosure Controls are also designed to ensure that the information
is accumulated and communicated to our management, including the CEO and CFO,
as appropriate to allow timely decisions regarding required disclosure.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Internal control over financial reporting (Internal Controls) are procedures
which are designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America and includes those policies and procedures that: (1)
pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of SBS; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of SBS are
being made only in accordance with authorizations of management and directors
of SBS; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of SBS assets that
could have a material effect on the financial statements. To the extent that
components of our Internal Controls are included in our Disclosure Controls,
they are included in the scope of our quarterly controls evaluation.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Limitations on the Effectiveness of Controls
| |  | --------------------------------------------



| |  | Our management, including the CEO and CFO, does not expect that our Disclosure
Controls or Internal Controls will prevent all error and all fraud. A control
system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the control systems objectives will be met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the company have been detected. These
inherent limitations include the realities that judgments in decision-making
can be faulty, and that breakdowns can occur because of simple error or
mistake. Controls can also be circumvented by the individual acts of some
persons, by collusion of
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents





| |  | two or more people, or by management override of the controls. The design of
any system of controls is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Over time, controls may become inadequate because of changes in conditions or
deterioration in the degree of compliance with policies or procedures. Because
of the inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Conclusions
| |  | -----------



| |  | Based on our controls evaluation (with the participation of our CEO and CFO),
as of the end of the period covered by this report, our CEO and CFO have
concluded that, subject to the limitations noted above, our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) are effective to ensure that information required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | There was no change in our internal control over financial reporting during our
second fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

23



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##### Table of Contents









PART II  OTHER INFORMATION







Item 4  Submission of Matters to a Vote of Security Holders



| |  |  | The following items were submitted to a vote at the Annual Meeting
of Shareholders held on November 13, 2003:
| |  |  | -------------------------------------------------------------------------------------------------------------

TABULATION OF VOTES (*)

Against or
    
    Abstentions andItem Voted
    
    For
    
    Withheld
    
    Broker Non-VotesProxy Item No. 1Election of Directors:Christopher J. Amenson
    
    
    13,831,156
    
    
    
    61,783Warren W. Andrews
    
    
    13,132,808
    
    
    
    760,131Lawrence A. Bennigson
    
    
    13,132,108
    
    
    
    760,831Peter D. Fenner
    
    
    13,132,145
    
    
    
    760,794Louis C. Golm
    
    
    13,132,345
    
    
    
    760,594Clarence W. Peckham
    
    
    13,832,048
    
    
    
    60,891Richard Szafranski
    
    
    13,713,002
    
    
    
    179,937Alan F. White
    
    
    13,716,239
    
    
    
    176,700Proxy Item No. 2Ratification of KPMG LLP
as the Companys
independent auditor for
fiscal year ending June
30, 2004
    
    
    13,063,957
    
    
    
    824,848
    
    
    
    4,134Proxy Item No. 3Approval of Amendment to
1993 Director and Officer
Stock Option Plan
    
    
    4,896,960
    
    
    
    5,923,255
    
    
    
    3,072,724




| | * |  | Proxy item No. 1, Election of Directors, and proxy item No.
2, Ratification of KPMG LLP as the Companys independent auditor for
fiscal year ending June 30, 2004, were approved by the Companys
shareholders at the Annual Meeting.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Proxy item No. 3, Approval of Amendment to 1993 Director and Officer
Stock Option Plan, required a majority of the shares represented in
person or by proxy at the Annual Meeting to be approved. This
proposal was not approved by the Companys shareholders at the Annual
Meeting.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents









Item 6  Exhibits and Reports on Form 8-K.

(a) Exhibits (exhibit reference numbers refer to Item 601 of Regulation S-K)

03.i
    
    
    
    (1)
    
    Restated Articles of Incorporation.03.ii
    
    
    
    (1)
    
    Second Restated and Amended Bylaws.04.a
    
    
    
    (1)
    
    Article VI of the Restated Articles of Incorporation, as included in the Restated Articles of
Incorporation of SBS Technologies, Inc.04.b
    
    
    
    (1)
    
    Articles I and II of the Restated and Amended Bylaws of SBS Technologies, Inc.04.c
    
    
    
    (1)
    
    Form of certificate evidencing Common Stock.04.1
    
    
    
    (1)
    
    Rights Agreement dated September 15, 1997 between SBS Technologies, Inc. and First Security Bank (now
Wells Fargo), National Association, as Rights Agent, which
includes the form of Right Certificate as Exhibit A and the
Summary of Rights to Purchase Common Stock as Exhibit B.2 and
Agreement to Serve as Rights Agent; on January 21, 1998,
pursuant to Section 21 of the Shareholder Rights Agreement
dated September 15, 1997, we appointed Norwest Bank Minnesota
N.A. (now Wells Fargo) as Successor Rights Agent.10.cd
    
    
    
    (1)
    
    Sublease agreement between SBS Technologies, Inc., and Viasat, Inc., a Delaware corporation, dated October
29, 200314
    
    
    
    (1)
    
    Code of Ethics.31.1
    
    
    
    (1)
    
    Certification of the Companys Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    
    (1)
    
    Certification of the Companys Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    
    (1)
    
    Certification of the Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    
    (1)
    
    Certification of the Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.(1) See Exhibit Index




(b) Reports on Form 8-K during the quarter



| | 1. |  | On October 6, 2003, SBS Technologies, Inc. filed
a Form 8-K regarding updating guidance regarding sales for
the quarter ended September 30, 2003 as a result of
shipments delays experienced during the quarter.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. |  | On October 14, 2003, SBS Technologies, Inc.
filed a Form 8-K regarding updating its financial results
for the quarter ended September 30, 2003.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| | 3. |  | On November 21, 2003, SBS Technologies, Inc.
filed a Form 8-K regarding amendments to the Registrants
Code of Ethics approved and adopted by the Companys Board
of Directors on November 14, 2003.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents









SIGNATURES



|Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

SBS TECHNOLOGIES, INC.
(Registrant)By:
    
    /s/ Clarence W. PeckhamClarence W. PeckhamChief Executive OfficerBy:
    
    /s/ James E. Dixon Jr.James E. Dixon Jr.Executive Vice President andChief Financial Officer


Date: February 13, 2004

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##### Table of Contents









INDEX TO EXHIBITS

Incorporated by ReferenceFiscal
    
    FiledExhibit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    period
    
    Here-Number
    
    Exhibit Description
    
    
    
    Form
    
    File No.
    
    Exhibit
    
    ended
    
    with3.i
    
    Restated Articles of Incorporation dated
November 10, 2000
    
    10-Q
    
    
    001-10981
    
    
    
    3.i
    
    
    9-30-20003.ii
    
    Second Restated and Amended By-laws dated
November 13, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    X4.a
    
    Article VI of the Articles of
Incorporation, as amended, as included in
the Articles of Incorporation of SBS
Technologies, Inc.
    
    10-Q
    
    
    001-10981
    
    
    
    3.i
    
    
    9-30-20004.b
    
    Articles I and II of the Restated and
Amended Bylaws of SBS Technologies, Inc.
    
    10-Q
    
    
    001-10981
    
    
    
    3.ii
    
    
    9-30-20004.c
    
    Form of certificate evidencing Common Stock
    
    10-Q
    
    
    001-10981
    
    
    
    4.c
    
    
    3-31-20014.1
    
    Rights Agreement dated as of September 15,
1997 between SBS Technologies, Inc. and
First Security Bank (now Wells Fargo),
National Association, as Rights Agent,
which includes the form of Right
Certificate as Exhibit A, and the Summary
of Rights to Purchase Common Stock as
Exhibit B.2. Agreement to Serve as Rights
Agent. On January 21, 1998, pursuant to
Section 21 of the Rights Agreement, SBS
appointed Norwest Bank Minnesota, N.A.
(now Wells Fargo) as Successor Rights
Agent
    
    10-K
    
    
    001-10981
    
    
    
    4.1
    
    
    6-30-200210.cd
    
    Sublease agreement between SBS
Technologies, Inc., and Viasat, Inc., a
Delaware corporation, dated October 29,
2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    X14
    
    Code of Ethics
    
    8-K
    
    
    001-10981
    
    
    
    14
    
    
    11-21-200331.1
    
    Section 302 certification of Clarence W.
Peckham, Chief Executive Officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    X31.2
    
    Section 302 certification of James E.
Dixon Jr., Chief Financial Officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    X32.1
    
    Section 906 certification of Clarence W.
Peckham, Chief Executive Officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    X32.2
    
    Section 906 certification of James E.
Dixon Jr., Chief Financial Officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    X


27